AI stocks plunge as US markets retreat following midterm election results

US markets experienced a significant decline on Thursday, with technology shares leading a broad selloff. The tech-heavy Nasdaq dropped 4.8 percent in midday trading, while the S&P 500 fell 3.6 percent and the Dow Jones Industrial Average retreated by 2.8 percent. This market movement occurred as investors reacted to the results of the US midterm elections, where Democrats secured sweeping victories.

AI stocks plunge as investors assess the impact of new political restrictions on data centre infrastructure.

Why AI stocks plunge

Artificial intelligence stocks, which had previously served as a primary engine for market growth, were at the forefront of the decline. The selloff was largely driven by concerns over new regulatory hurdles for AI infrastructure. Data from Data Centers on the Ballot indicated that voters approved restrictions on 39 out of 45 local ballot initiatives, with only one initiative in North Dakota failing to pass such measures. Analysts at UBS have estimated that these construction pauses could place approximately 30 percent of planned US data centre capacity for 2028 at risk.

Michael Monaghan, a portfolio manager at Founders 100 ETF, noted that while markets initially rallied on the certainty provided by the election results, portfolio managers are now adjusting their expectations regarding potential political resistance to AI infrastructure. This sentiment was reflected in the performance of semiconductor and cloud-related companies. CoreWeave shares fell over 12 percent, while Nebius Group declined by nearly 17 percent. Major semiconductor firms also saw significant losses, with Nvidia down 8.2 percent, Micron falling nearly 14 percent, and Intel dropping 6.8 percent.

Other major tech entities were also impacted, with Amazon shares falling 2 percent and Meta dropping 3.8 percent. Additionally, Tesla shares fell over 11 percent, and SpaceX shares declined 9.5 percent. These losses followed reports of Elon Musk’s significant financial involvement in midterm races, where he backed candidates who were ultimately defeated. Dan Ives of Yorkville Ives suggested that the new political landscape in Washington and Texas might create a more difficult regulatory environment for potential future mergers involving these companies.

European markets also saw a decline in technology stocks as investors assessed the implications of the US election outcomes. Gold prices, often viewed as a safe-haven asset, rose by over one percent to $4,115 per ounce.

Why it matters

The market shift highlights a growing tension between the rapid expansion of AI infrastructure and local regulatory resistance. This development impacts investors and major tech firms that rely on data centre growth, suggesting a potential shift in capital allocation away from the technology sector. The uncertainty surrounding future infrastructure projects may influence global market sentiment, as investors weigh the implications of the US political shift on the broader tech industry.